Hydropower Sector Clouds Macroeconomic Prospects in Bhutan

Thimphu, September 13, 2017 — The World Bank launched the Bhutan Economic Update, September 2017. The Bhutan Economic Update reports on and synthesizes recent economic developments and places them in a medium-term, and regional and global context. It analyzes the implications of these developments and policies on the outlook of Bhutan’s economy. Bhutan maintained solid growth and macroeconomic stability in the first half of 2017. However, delays in hydropower construction cloud macroeconomic prospects in the coming years. Given the size and importance of hydropower projects in the economy, delays are likely to have significant negative impact on growth, revenues and exports although the economy is still expected to expand by 6.9 percent in 2018 “Good news is that Bhutan maintained solid growth and macroeconomic stability in the first half of 2017. Lending growth rates are strong. Consumer price index, exchange rates, gross international reserves show macroeconomic stability,” said Yoichiro Ishihara, the World Bank’s Resident Representative for Bhutan. As of June 2017, consumer price index (CPI) increased by 4.9 percent compared to the same month in 2016. Gross international reserves exceeded $1 billion, equivalent to 10 months of imports of goods and services. Exchange rates have been stable or slightly appreciating against the U.S. dollar in 2017. “However, macroeconomic prospects are not as bright as six months ago. Planned completion years of the Punatsangchhu I and II hydropower projects have been delayed by 1-2 years. Given the size of the projects, the delays are likely to have negative impacts on the economy through growth, exports and government revenues,” said Yoichiro Ishihara. “GDP growth rates are likely to be 6.5-7.5 percent in the coming years.” The Bhutan Economic Update points out four downside risks to growth: (a) further delays in hydropower construction, (b) budget financing, (c) impacts from India’s Goods and Services Tax (GST) and (d) natural disasters. 

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